Poloniex margin lenders have threatened the exchange with a lawsuit after they lost $13.5 million in a flash crash on an alt coin, CLAM. The crash, which occurred on May 26, resulted in a number of margin loans defaulting and a roughly 1,800 BTC generalized loss in the Poloniex margin lending pool. Following the crash, Poloniex subsequently froze all of the defaulted borrowers’ accounts, stating that it will keep them frozen until the borrowers repay their loans. The exchange, which geofenced nine coins last month over securities fears, also claimed that it will return the funds to affected lenders once it has recovered the lost money.
CLAM incident update: Make no mistake, we’re committed to making affected lenders whole, come hell or high water. We’re working on meeting this goal, including (but not limited to) recovering what the defaulted borrowers owe lenders. Regardless, losses will be addressed.
— Poloniex Exchange (@Poloniex) June 8, 2019
Bottom Falls out of CLAM
CLAM is the token associated with the Clams project, which calls itself the “most fairly distributed cryptocurrency”. Prior to May 26 it had spent three and a half months in an incredible uptrend, going from $1.66 to $20 in that time. In a turn of events that stinks of manipulation more than your granddad’s aftershave, the second it hit $20 on May 26 it experienced a huge and violent crash, tumbling 70% in less than an hour, resulting in the defaulting of the loans. In a post explaining the crash, Poloniex said that the loss occurred for two main reasons: the velocity of the crash and the lack of liquidity on the token, plus the fact that a significant amount of the total loan value was collateralized in CLAM, which obviously went down with the ship. As a result, some borrowers were unable to repay their loans with the digital assets held on Poloniex.
Poloniex Promises to do Better
To cover its losses, Poloniex withdrew 16.2% from all active BTC loans on the platform at the same time as they froze the accounts of the defaulted borrower accounts, something that some affected customers have simply labelled theft. Poloniex promised to make affected lenders whole “come hell or high water”, and have introduced a number of further measures to shore up their margin lending platform, including:
- Removing margin trading for CLAM, FCT, MAID, and BTC, all of which have poor liquidity
- Adding additional layers to monitor risk in margin markets
- Putting extra market protections in place which should help prevent major price slippage and over-concentrated positions
It seems that Polonies has learnt some lessons from the event, but that will be little consolation to the margin lenders who have seen their BTC taken from them.
